FCC stands pat on 700MHz auction rules in face of criticism

Some small business owners complained to Congress yesterday about the FCC's …

Last week, the FCC released the final rules for the upcoming 700MHz auction. They proved to be almost identical to the rules released in August, although the auction has now been pushed back a week until January 24, 2008. Boring, right? But the lack of major changes is actually an indication that neither Verizon, nor Frontline Wireless, nor some small business owners were going to see the changes they wanted, changes that would lower build-out requirements and gut the "open access" provisions that govern part of the spectrum. Yesterday, the small business owners had a chance to lobby Congress on the issue.

The House Committee on Small Business hosted a hearing on how the auction rules would affect small business, and Christopher Guttman-McCabe from CTIA (the wireless trade group) was on hand to complain. The 700MHz rules are designed to make small businesses competitive bidders over a chunk of the available 60MHz of spectrum, but Guttman-McCabe charged that the rules would actually hinder such businesses from participating.

22MHz of spectrum is grouped together as a set of large licenses with "open access" rules on them, generally designed for a large company to pick up a national swath of spectrum. A further block of spectrum is set aside for a Public Safety Partnership that will require the winner to build a national network to public safety specs. Neither is conducive to small business. But the FCC broke the rest of licenses into smaller groups that are more attractive to regional wireless firms. The agency also offers bidding credits to small businesses to help them compete against the companies with deeper pockets.

But the rules also come with tough build-out requirements. FCC Chairman Kevin Martin, who also spoke at the hearing, told the committee that they were "the strictest build-out rules ever implemented for wireless services." In the CTIA's view, that's exactly the problem.

The rules call for license winners to cover 35 percent of their geographic area within four years, and 70 percent within ten years. Guttman-McCabe points out, though, that many small wireless companies operate in rural areas, which may be sparsely populated. "More than 87 percent of the population lives on just eight percent of the geography," he said. "We think it makes little sense to emphasize the coverage of geographic areas where no one resides."

CTIA also dislikes the open access rules, which would enforce a "no locking and no blocking" directive on wireless carriers. Any safe device could be used across an open network, and it could run any safe application. That explains why Skype's head of regulatory affairs was on hand to tell the committee just how important such a rule was to Skype's growth, and how important it will be for the future of wireless. "Eleven years ago, eBay was a small business," he said. "Four years ago, Skype was a small business. eBay and Skype grew and are successful because the Internet was open."

CTIA argues, on the other hand, that the ability to control devices is crucial for "security, quality, and viability of [a] wireless network."

Thus far, the FCC has stuck to its decision, and Martin has become an unlikely advocate for open access rules. With the rules now set, it looks like open access will proceed unless Congress tries to intervene, though it could affect small businesses in other ways: big telcos might find the open access provision unattractive and try instead to gobble up national spectrum by piecing together a string of small licenses. Such a move could lower the overall bid price for the open access block and also limit the spectrum available to small firms.